Magazine

Inside Wall Street

June 03, 2009

Fresh Quests for Qualcomm

Qualcomm (QCOM), the largest developer of chips based on CDMA wireless phone technology, is mining lucrative new markets. Its 3G modules are now in use in Amazon.com's (AMZN) Kindle, Google's (GOOG) Android system for mobile devices, FLO TV for advanced cell phones, and laptops from Hewlett-Packard (HPQ), Dell (DELL), Panasonic (PC), and Sony (SNE).

Qualcomm has also been working with partners in the medical field to help create new solutions, such as mobile electrocardiogram readers, remote patient monitoring, and glucose monitoring cell phones, says Dan Novak, vice-president for global marketing. These new areas have expanded Qualcomm's reach.

"Despite a challenging economy, global demand for Qualcomm's 3G-enabled mobile products and services made for a quarterly performance that exceeded even the company's own guidance," says David Weissman of Zacks Investment Research, who rates the stock a buy. It sank to 28 on Nov. 21 but rebounded to 43.58 on June 3. Weissman sees the stock at 50 in six months.

Tim Luke of Barclays Capital (BCS) (it has done banking for Qualcomm) tags the stock outperform. He has raised his earnings estimate to $2.50 a share for calendar 2010, up from an earlier $2.42, compared with 2009's estimated $1.65, as orders from China, Nokia (NOK), and Motorola (MOT) ramp up.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Why Bally May Be a Good Bet

Casinos are expected to replace their gambling systems with more streamlined devices in 2010—a big boon to Las Vegas suppliers. So which manufacturer should investors bet on?

"Bally Technologies (BYI) holds the keys to the kingdom as the leading casino management-systems supplier," says David Bain, managing director at investment firm Sterne Agee. Bally designs and makes gaming machines and computerized monitoring and accounting systems for the gambling industry. Bain expects industry consolidation and sees Bally as a likely target for large hotel-casino companies. Its stock soared to 28.51 on June 3, up from 13 on Mar. 6. Bain predicts it will hit 55 in a year.

David Katz of Oppenheimer (OPY) says the roll-out of new products will also boost profits. He sees Bally earning $2.23 a share in 2009 and $2.64 in 2010, vs. $1.84 in 2008.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Cancer Drugs from Spectrum

Little-known Spectrum Pharmaceuticals (SPPI) has been one of the market's big winners, climbing to 5.47 on May 26, up from 55 cents in mid-October. It has since eased to 4.74. But don't think the party's over. "Despite the run-up, we recommend buying Spectrum, our top pick among small-cap biotechs," says Shiv Kapoor of investment firm Morgan Joseph, whose 12-month target is 7. Goldman Sachs (GS) is the biggest shareholder, with 3.6%.

Spectrum has two anti-cancer drugs on the market: One targets non-Hodgkin's lymphoma, and the other treats osteogenic sarcoma. Spectrum has teamed up with Allergan for its drug for bladder cancer. In November, Allergan invested $41.5 million, plus 65% of the compound's R&D expenses. Royalties and milestone payments could total $400 million, says Raj Shrotriya, Spectrum's CEO. Rodman & Renshaw's Reni Benjamin rates Spectrum outperform.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.